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Organizations serve a
purpose. They exist to deliver certain value(s).
Organizations also use a tremendous amount of time, effort, investments,
assets and resources.
So it makes perfect
sense to ensure, manage, measure, monitor, encourage and support that
maximum value is realized. This is what
Value Based Management is all about.
Another way to
explain why Value Based Management is important is to realize that your
organization is operating and competing in four markets:
1. the market for
its products and services
2. the market for
corporate management and control (competition on determining who is in
charge of an organization, threat of takeovers, restructuring and/or
leveraged buyouts)
3. the capital
markets (competition for investors' favor and savings)
4. the employee and
managers market (competition for company imago and ability to attract top
talent)
Value Based
Management can help organizations to win in each of these 4 markets. Failure
to be competitive on one or more of these markets will seriously jeopardize
the survival chances of a corporation.
In recent years,
accounting metrics have turned out to be very unreliable. This also
supports the emergence of new value-based metrics such as
Economic Value Added, CFROI,
Market Value Added and other
valuation mechanisms.
The following
comprehensive list of benefits
of Value Based Management clearly demonstrates why Value Based
Management is by far the most powerful
mechanism existing today to manage corporations:
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VBM can maximize
value creation consistently,
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VBM increases
corporate transparency,
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VBM helps
organizations deal with globalized and deregulated capital markets,
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VBM aligns the
interests of (top) managers with the interests of share- and stakeholders,
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VBM facilitates
communication with investors, analysts and communication with
stakeholders,
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VBM improves
internal communication on strategy,
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VBM prevents
undervaluation of the stock,
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VBM sets clear
management priorities,
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VBM facilitates to
improve decision making,
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VBM helps to balance
short-term, mid-term and long-term trade-offs,
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VBM encourages
value-creating investments,
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VBM improves the
allocation of resources,
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VBM streamlines
planning and budgeting,
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VBM sets effective
targets for compensation,
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VBM facilitates the
use of stock for mergers or acquisitions,
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VBM prevents
takeovers,
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VBM helps to better
deal with increased complexity and greater uncertainty and risk.
Compare:
Drawbacks of VBM |
What is Value Based
Management |
History of VBM
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